Ever wondered how it would be if you started working on an idea that’s brewing in your mind, and started a business with it? Or how it would feel to start taking control of your time and money, and be your own boss? In this post, we’ll cover the basics of how to start a business in the Philippines.
I have scoured information off the internet, interviewed some professionals in the system, and consulted agencies about what’s required to start a business in the Philippines. Here’s what I learned.
How to start a business in 4 steps
Before we begin, we will assume that you already have the business idea and validated your idea.
1. Determine your business type
The first step in how to start your own business is to decide whether you will be a brick-and-mortar type of business where you will have a storefront, or whether you will do business purely online.
COVID-19 has driven both customers and businesses online because it’s a touch-free way to do business.
If you are already thinking of going online but are unsure what to do, look no further as we have How to start making online sales, where we’ll give you a step-by-step look into the process of building your online presence.
After deciding between online and offline presence, you will now determine what kind of business type you will have based on ownership and liability.
Your business type can be either one of these three:
- Sole Proprietorship – A sole proprietorship is a business structure where the owner is any individual who has total control of the business. You are basically “the business.” However, note that you and your personal assets are liable for any damages you might incur when doing business using this structure. Because this is the easiest way in for a new business or freelancer, this article will focus on this kind of business type.
- Partnership – A partnership is the right choice for two or more individuals who wish to share in building the assets of the business. You can either start as a General Partnership, where you are involved in the operations of the business but have unlimited liability, or as a Limited Partnership, where you delegate operations to another person, but have limited liability according to the extent of your investment in the business.
- Corporation – This is where a group of individuals wish to start a company, taking on both the benefits and the requirements of being a recognized corporation. You will need a minimum of 1 million (1,000,000) in authorized stock to begin with and should be registered with the Securities and Exchange Commission (SEC).
There is also the option to register as a One-Person Corporation, where you can register as the sole owner of the corporation for doing business. This business structure comes with another subset of requirements and liabilities, which we will save for another article.
For foreigners who wish to start a business in the Philippines, there are a separate list of requirements and limitations when registering your business.
Since we’re gearing this article for individual freelancers who wish to establish their own businesses and legitimize their income, we’ll not cover the requirements for partnerships and corporations. For more information about these business types, see How to apply for a business on the Philippine Central Business Portal.
Once you have determined your business type, grab the proverbial pen and paper! Time to name your new venture. It’s a good idea to select a name for which the matching domain is available, as your domain name will become your web address.
For example, for a business named Daraga Carpentry, having a domain name of DaragaCarpentry.com or DaragaCarpentry.ph minimizes customer confusion.
Need help choosing a business name? Check out GoDaddy’s domain name generator to jumpstart your brainstorming process.
2. Register the business name
Once you’ve chosen a business name and registered the matching domain name, you’ll want to register your business name. This is the name you will be using when issuing receipts, registering for a bank account, creating signs for your storefront and more.
To begin registering for your business name, go to the Department of Trade and Industry (DTI) Business Name Registration Service and start the registration process. You will need to pay the following registration fees for your registration:
|Type of Registration||Fee (in Philippine Pesos)|
Your registration type will determine the extent of your businesses’ registration, and whether you can do business within a certain scope with your registered name.
A small store selling only within its vicinity should opt for a Barangay level registration.
However, if you’re a freelancer and would like to service clients all over the country, you will need to register with the National level type of registration, so you can issue receipts for clients all over the country. This also protects your business name from being copied by people outside of the registration region.
Once your business name is registered, you can now proceed to the next step
3. Apply for permits, licenses and clearances
Now that you have your business name registered, you can now proceed to apply for your clearances, permits and licenses.
The following are the necessary documents for you to register, in order of necessity:
Register for Barangay Clearance
The most basic unit of local governance in the Philippines is the barangay, and with this you will need to register for a barangay clearance before anything else. This is one of the first permits you need to apply for as this is needed to secure a municipal permit later.
For you to register for a barangay clearance, you will need:
- Two valid IDs
- Proof of Address. Contract of Lease (if rented) or Certificate of Land Title (if owned)
- Certificate of registration from DTI (which you completed previously)
Apply for a Mayor’s or Municipal Permit
This is where you will now head to the city hall of where your business is located. Here, you will register for a Mayor’s Permit, where you will be given authorization to conduct your business within the city.
For you to register for a Mayor’s Permit, you will need the following:
- Two valid IDs
- Proof of address in the form of either a lease contract (if rented) or Certificate of Land Title (if owned)
- Certificate of registration from DTI
Remember that these are the documentary requirements for registering your business at a municipal level. You might also need a certificate of insurance for your company, depending on your location (Makati City, where most businesses are, requires you to have one).
4. Register with the Bureau of Internal Revenue (BIR)
The final step in starting your own business is the most complicated step of the four. with the BIR is where you finally get the certificate of registration, and where you can finally issue receipts. So once they’re completed, you can really begin doing business.
Completing this step requires the following documents:
- DTI Certificate of Registration
- One of these:
Occupational Tax Receipt (for non-licensed professionals, such as performers or writers)
Professional Tax Receipt (for licensed professionals, such as engineers or accountants)
- Barangay Business Clearance
- Mayor’s Permit
- Certificate of Lease (if the place of business is rented) or Certificate of Land Title (if owned)
- Government-issued identification (passport, driver’s license, birth certificate, etc.)
Once you have the documents on hand, proceed to the nearest Regional District Office (RDO) where your business is registered.
You will need to pay a Php500 registration fee at a minimum, so make sure you have enough cash when going to your RDO.
Check your nearest RDO here.
Two registration options
There are two kinds of registration with the BIR for your business:
- Registering for a new TIN (Tax Identification Number) or
- Updating your existing TIN
I won’t go into detail on how to exactly go through these steps as these are outlined on the bureau’s website. However, the steps are straightforward once you arrive at the BIR office.
What’s more, most BIR offices have the entire process displayed in a huge tarpaulin, so you won’t miss it. And if you do get lost, there’s always the information desk at the front.
Now you’re ready to roll
Completing this last step should give you at least the following documents:
Certificate of Registration (COR)
This proves that the business is an officially-recognized business.
Books of Accounts
You have two options here. You can either use:
- Manual Books of Account, where you hand-write all the transactions in your business or
- Loose-leaf Books of Account that are printed instead of being handwritten, including journals and ledgers. Bookkeeping through Microsoft Excel (spreadsheets) can be considered as a loose-leaf book of account as well
- Computerized Books of Account, where a program or computerized system of bookkeeping (something akin to an Enterprise Resource Planning or ERP system) that is usually common for businesses with complex operations.
For freelancers, it is usually required to have two books of accounts. Register your books by completing and submitting BIR Form 1905, together with your books of account at the RDO where your business is registered.
Authority to Print (ATP)
An ATP is an authorization by the BIR for you to print out receipts when accepting payment in your business name.
This can be acquired from BIR itself, after acquiring the ATP. These are the receipts that you will write on manually whenever you receive payment for services.
Computerized receipts can have more complex requirements, and are most commonly needed by brick-and-mortar storefronts. Check out this link for more information on registering for this system.
Why would you even want to register your business?
Are you wondering “Why can’t I just work silently and earn money, without going through the hassle of registering for these documents — and paying taxes for every invoice?” Well, there are numerous reasons to register your business:
- Enterprises will be able to hire you at your rates. If you are a registered business, huge companies and enterprises will be able to secure your services without a second thought, as outsourcing services can be tax-deductible in their books. Also, businesses will appreciate a standard invoice from you, as they must have all their financial transactions documented for tax purposes.
- You can have your business insured to safeguard your assets. If your business is insured, your suppliers and contractors can be assured that whenever they provide you with materials, they will get paid, even if hard times come about (I’m looking at you, COVID-19).
How to start a business in summary
The concludes our list of steps on how to start your own business. Once you’ve worked through the list, you’ll be ready to rumble! Then it’s time to get busy, for you are set up and ready to start promoting your business.
Stay safe, and good luck!